Corporate Crime & Investigations Update - 10 March 2017

Included in this issue: The future of Deferred Prosecution Agreements; South Korea Court upholds President Park's impeachment; National Crime Agency joins Australians in economic crime crackdown and more...

General

The future of Deferred Prosecution Agreements

Ben Morgan, Joint Head of Bribery and Corruption at the SFO, gave a speech at Norton Rose Fulbright LLP in which he considered the outcomes of the three Deferred Prosecution Agreements (DPAs) used in the UK so far.

Mr Morgan asserted that DPAs will continue to become more prevalent. This is especially given that the alternative for companies that do not cooperate with the SFO via a DPA is prosecution and a punitive sanction if convicted after trial. As such, corporates that become aware of economic crime within their organisation will be encouraged to self-report and do all that they can to correct, what he terms, the "deficit" created by past wrongdoing. Although Mr Morgan accepted the "fine line" between incentivising corporations to confront economic crime and appearing soft on the perpetrators of such crime.

Mr Morgan provided 6 statements which he stated represented the future of DPAs: that DPAs would become more common; that there is a benchmark for cooperation established by the three DPAs entered into so far; there is a consequential premium for not cooperating (i.e. the loss of the 50% discount on sentence which would otherwise have been available through entering into a DPA); that self-reporting is not dead with the SFO maintaining a steady flow of engagement with companies; there is a steady trend of international cooperation regarding enforcement; and that the SFO are constantly assessing whether DPAs are working as well as they could.

Bribery and Corruption

South Korea Court upholds President Park's impeachment

South Korea's constitutional court has upheld the country's parliamentary decision to impeach President Park Geun-hye.

President Park was impeached in respect of her alleged involvement in a bribery and corruption scandal involving a number of companies, including Samsung, who allegedly paid tens of millions of dollars in bribes to foundations controlled by a close friend of President Park- Choi Soon-sil. As noted in previous updates, President Park is accused of having colluded in the scheme by pressuring large companies to document to Choi's charities in order to gain preferential treatment or regulatory approval.

As a result of the Court's decision, there is a risk that President Park is criminally prosecuted in respect of these allegations.

Frankie Fredericks: IAAF official quits two roles over corruption claim

Four-time Namibia Olympic silver medallist Frankie Fredericks has stepped down as head of the evaluation commission for the 2024 Olympic Games and from the taskforce helping Russia return to international competition.

His decision comes after Le Monde published claims that Mr Fredericks was paid days before voting on the host city for the 2016 Olympic Games. Fredericks denies the allegation. The matter is currently being investigated by the International Olympic Committee

Money Laundering

National Crime Agency joins Australians in economic crime crackdown

The National Crime Agency has seconded two of its officers to Australia to assist with the launch of the first physically co-located alliance of public and private sector bodies set up to fight serious financial crime. The Fintel Alliance in Australia comprises 19 partners including Australia’s financial intelligence agency AUSTRAC, the Australian Federal Police, NSW Police, Australian Tax Office, banks, Western Union and PayPal.

The NCA noted that the two officers were selected due to their expertise in and experience of working at the UK's Joint Money Laundering Intelligence Taskforce (JMLIT).

2017 International Narcotics Control Strategy Report

According to the 2017 International Narcotics Control Strategy Report, there were 88 Major Money Laundering Countries in 2016 including China, Russia and the UK. A Major Money Laundering Country is defined as one "whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking”.

Volume II of the report, entitled "Money Laundering and Financial Crimes" suggests that the UK has "significant intelligence gaps, in particular in relation to ‘high-end’ money laundering, where the proceeds are held in bank accounts, real estate, or other investments rather than cash".

Fraud

Investigation opened into ethical forestry investment scheme

The Serious Fraud Office has opened a criminal investigation into an investment scheme marketed by Ethical Forestry Ltd and associated companies. The scheme is being investigated for fraud covering the period from 2007 to 2015.

On Wednesday 8 March 2017 the SFO, in conjunction with Dorset Police, executed search warrants at three addresses in Dorset.

Serious Fraud Office investigation into Sir Philip Green is being wound down

The Daily Telegraph has reported that the Serious Fraud Office (SFO) investigation into Sir Philip Green is being wound down. The report suggests that, in pursuing their investigation into the sale and collapse of BHS, the SFO was finding it difficult to distinguish between sharp practice and illegality.

Cyber Crime

It is reported that the South African government has produced draft legislation revising a 2015 bill to tackle cybercrime. It is understood that the new bill has removed many of the provisions on computer-related terrorist activity, which were criticised for being defined too broadly and included activity that caused "feelings of insecurity among… the public".

The new bill also targets what is defined as "harmful" data messages, which is said to include messages that are “inherently false” and “aimed at causing mental, psychological, physical or economic harm.”

Tax

Caterpillar is accused of engaging in US tax fraud

In a report commissioned by the US government, Caterpillar, has been accused of carrying out tax and accounting fraud.

The report's author is said to have determined that the company intentionally failed to comply with US tax laws and financial reporting rules with the intention of maintaining a high share price. In doing so, the report's author has suggested that Caterpillar has acted fraudulently.

Sanctions

ZTE Corporation pleads guilty to violating US export controls on Iran

A Chinese telecom company, ZTE Corporation, plead guilty to conspiring to violate US export controls in respect of Iran by illegally shipping US-origin items into the country, obstructing justice and making a material false statement. It is understood that the company "lied to federal investigators and even deceived their own counsel and internal investigators about their illegal acts."

The company has agreed to pay a $430.4 million penalty in respect of the matter.

Environmental

Waste firm AWM fined £125,000 for causing odour pollution

Waste firm, Associated Waste Management Ltd, has been fined £125,000 for causing odour pollution at its sites in Leeds and Bradford. The Environment Agency prosecuted the company following repeated odour problems that had a detrimental effect on local residents. From June 2012 and October 2013, Environment Agency officers carried out around 75 odour assessments, and most of them recorded smells that were likely to cause offence to human senses. An inspection visit in March 2013 revealed that the company was not closing the shutters on a tipping shed used by bin wagons, which allowed the smell of rotting waste to leave the site. In July, the Environment Agency served an enforcement notice on the firm that required it to improve its odour management plan for the site. The company’s first revision of this document, submitted in August, was rejected as inadequate and it was not until October that a new plan was approved.

Health and Safety

Two companies have been fined after one man died and another was seriously injured after falling through a lift shaft

Work was being carried out to decommission the lift shaft when the chain supporting the lift car broke whilst the two men were on top of it.

One of the men was wearing a harness and suffered serious injuries, the other man who was not harnessed died instantly.

TE Scudder Ltd who were the principle contractor and employer on site, pleaded guilty to breaching Section 2(1) and Section 3(1) of the Health and Safety at Work Act 1974, and were fined £600,000 plus £27,408 in costs.

Patrick Pearson, the director of Intervale Ltd, was the contract manager responsible for planning the decommissioning of lift shafts. He pleaded guilty to breaching Section 3 (2) of the Health and Safety at Work Act 1974 and was ordered to complete 120 hours community service and pay costs of £3000.